Becoming an ISA millionaire is a goal for many UK investors, and it’s certainly an achievable one. This is illustrated by the fact that at Hargreaves Lansdown, nearly 1,000 clients have ISAs worth £1m or more today.
While my own ISA balance is still well below the million mark, I’m convinced that if I play my cards right, I can build up £1m+ within my account well before I retire. With that in mind, here’s a look at my three-step ISA millionaire plan.
Finding the best ISAs
The starting point in my plan involves selecting the best ISAs to achieve my goal of becoming an ISA millionaire.
Given that interest rates on Cash ISAs are so low, I’ve opted for both a Stocks and Shares ISA and a Lifetime ISA. The big advantage these accounts have over Cash ISAs is that they allow me to invest in a wide range of growth investments such as stocks, funds, and investment trusts. These kinds of assets tend to deliver much higher returns than cash savings over the long term, meaning they could help me achieve my goal so much faster.
Additionally, the Lifetime ISA, which has a £4,000 annual allowance, comes with 25% bonus top-ups from the government up to age 50. This means I can potentially pick up £1,000 for free every year while I’m under 50.
Making regular contributions
The next step is straightforward – it simply involves contributing as much money as possible into my ISA accounts every year.
Now I don’t expect to be able to invest the full annual ISA allowance of £20k every year. However, if I can invest as much of my allowance as I can, my account balance should increase over time. I’m particularly keen to max out the Lifetime ISA allowance every year, to pick up the £1k bonus.
Steady investment returns
The third step – where things get a bit more challenging – is to invest my money in order to generate solid returns over time (without taking on too much risk).
I believe that the best approach is to put my money in the stock market. It’s arguably the greatest wealth creation machine in all of human history, having delivered returns of around 7-10% a year over the long run.
I also believe it’s a good idea to build a diversified portfolio of high-quality, ‘Warren Buffett-style’ growth companies. I’m talking about companies that are dominant in their industries, with strong competitive advantages, high levels of profitability, and rock-solid balance sheets. Such companies tend to deliver solid returns for investors over the long term.
So what I’m doing is buying shares in companies such as Apple, Microsoft, Alphabet, Mastercard, Diageo, and Rightmove within my ISA. These are all high-quality businesses with significant growth potential, and I’m viewing them as long-term ‘buy-and-hold’ positions. My plan is to keep adding to my positions whenever there’s a market pullback.
I’m also investing in funds that focus on high-quality companies for extra diversification. An example here is Fundsmith Equity. It’s the largest fund holding within my ISAs.
Of course, I do expect setbacks along the way. Markets rise and fall, meaning my wealth is likely to fluctuate over time. However, if I stick to my plan, I think there’s a good chance I’ll achieve my goal of becoming an ISA millionaire.
